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### Viewing cable 07MANAGUA2003, BRAZIL AND NICARAGUA: I SAY ETHANOL, YOU SAY HYDRO

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07MANAGUA2003 | 2007-08-30 16:04 | 2011-06-21 08:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Managua

`

    VZCZCXRO4676
    RR RUEHLMC
    DE RUEHMU #2003/01 2421604
    ZNR UUUUU ZZH
    R 301604Z AUG 07
    FM AMEMBASSY MANAGUA
    TO RUEHC/SECSTATE WASHDC 1121
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
    RUEHCV/AMEMBASSY CARACAS 1155
    RUEHBR/AMEMBASSY BRASILIA 0092
    RUEHSO/AMCONSUL SAO PAULO 0012
    RUEHRI/AMCONSUL RIO DE JANEIRO 0025
    RHEHNSC/NSC WASHDC
    RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

` `

    UNCLAS SECTION 01 OF 03 MANAGUA 002003

    SIPDIS

    SENSITIVE
    SIPDIS

    STATE FOR WHA/CEN, WHA/EPSC, AND EEB
    TREASURY FOR SARA GRAY
    USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
    3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR

    E.O. 12958: N/A
    TAGS: PREL EAID ECON PGOV NU IR
    SUBJECT: BRAZIL AND NICARAGUA: I SAY ETHANOL, YOU SAY HYDRO

    REF: A) MANAGUA 1978, B) MANAGUA 1944, C) MANAGUA 1783

    ¶1. (SBU) Summary: President Luiz Ignacio "Lula" da Silva's August
    7-8 visit to Nicaragua was the first by a Brazilian head of state in
    over 100 years.  While Lula's focus for the visit was ethanol and
    business opportunities that take advantage of CAFTA, Ortega tried to
    interest the Brazilians in projects in agriculture, electricity
    generation, and tourism.  Although Lula tried valiantly to convince
    Ortega of the benefits of ethanol, Ortega showed little interest.
    Instead, Ortega tried to shift the focus of Lula's visit toward the
    same portfolio of hydroelectric, geothermal, and infrastructure
    projects he has been peddling to the Iranians and others (Ref A).
    Bilateral talks also included Brazilian technical assistance to
    Nicaragua's Hambre Cero program, a possible debt for development
    swap, and support for Nicaragua's Peace and Reconciliation
    Commission.  Lula's visit made clear that while rhetorically Ortega,
    Lula, and Chavez appear to be at least in the same populist
    ballpark, in reality, the opportunities that the Brazilians seek in
    Nicaragua would require that Ortega step back from Chavez and ALBA,
    a move Ortega seems unwilling to make.  End Summary.

    Second Visit in a Week
    ----------------------

    ¶2. (U) Nicaraguan authorities characterized Brazilian President Luiz
    Ignacio "Lula" da Silva's August 7-8 visit to Nicaragua as a
    "historic event," a precursor to an increase in bilateral
    cooperation and investment.  The visit marked the first visit by a
    Brazilian head of state in more than 100 years, although Lula
    visited Managua as a union leader in 1980 to celebrate the first
    anniversary of the Sandinista revolution.  During this visit, a few
    days after a technical delegation from Iran toured Nicaragua (Ref
    A), Lula stated that he had maintained a close relationship with
    Ortega throughout the 1990s and that he was delighted that the FSLN
    leader had returned to power.  Brazilian officials declared they
    wanted to establish a relationship of "permanent cooperation" and
    "integration" with Nicaragua, particularly in the areas of
    agriculture, reforestation, fisheries, health, and education.  The
    two leaders signed twelve cooperation agreements covering
    agriculture, forestry, education, foreign relations, tourism,
    health, trade, investment and energy.

    ¶3. (U) Lula traveled to Nicaragua from Honduras, the second stop on
    his Latin American tour that included Mexico, Jamaica, and Panama.
    He was accompanied by his Minister of Foreign Relations Celso
    Amorim; Minister of Development, Industry, and Foreign Commerce
    Miguel Jorge; Special Secretary of Aquaculture and Fisheries Altemir
    Gregolin; and a delegation of 50 businessmen, who participated in a
    trade and investment forum in Managua geared toward creating
    investments in infrastructure, energy (mostly biofuels), and
    agro-industry.

    Biofuels - Is Ethanol an Option?
    --------------------------------

    ¶4. (U) One of the first areas for cooperation discussed was
    biofuels, primarily ethanol, as a potential way to solve Nicaragua's
    energy crisis.  Brazilian Marcos Saways Yank, President of the Sugar
    Agro-Industry Union of Sao Paulo, tried to convince GON officials
    and private sector representatives of the merits of ethanol
    production.  In an editorial published during the visit, Lula stated
    that he considers Nicaragua to be "a strong candidate to lead a
    pioneer initiative in Central America" in ethanol development.

    ¶5. (U) President Ortega, however, has been vocal about the danger of
    Nicaragua becoming dependent on ethanol production.  He has stated
    several times that reliance on ethanol will put Nicaragua on "the
    dangerous path to monoculture."  Outside of criticizing the United
    States' corn-based biofuel program, Ortega showed little interest in
    the subject throughout Lula's visit.  When pressed, Ortega stated
    that ethanol from African palm was acceptable, but avoided making
    any direct comments on sugar-based ethanol.  He added that he would
    leave the issue of biofuels to the private sector.  Later,
    Nicaraguan Minister of Energy and Mines Emilio Rappaccioli said that
    while the production of ethanol was justified for other countries,
    Nicaragua would prefer to use its farmland for the cultivation of
    food products such as basic grains.

    Electricity Instead of Biofuels
    -------------------------------

    ¶6. (U) In an effort to shift the focus of Lula's visit from ethanol
    and biofuels, the GON presented several hydroelectric and geothermal
    projects to the Brazilians, the same ones they hawked to the Iranian
    delegation a week earlier (Ref A).  Nicaraguan ENEL Director Ernesto
    Martinez Tiffer added two additional projects, which could generate
    up to 120 megawatts of electricity for an investment of USD 250
    million.  In the end, Lula agreed to look into financing
    hydroelectric and geothermal projects, but only after he lauded the
    potential for biofuels, based on soy, sunflowers, and Africa palm,
    as viable alternatives for Nicaragua.

    Infrastructure and Agro-Industry
    --------------------------------

    ¶7. (U) As they had done with the Iranian delegation, the Nicaraguans
    flooded the Brazilians with infrastructure project proposals.  The
    President's advisors presented proposals to improve the ports and
    airports on Nicaragua's Atlantic coast to increase tourism.  The
    Nicaraguan Port Authority requested USD 9 million to dredge 42 kms
    of the San Juan River.  Agriculture and Forestry Minister Ariel
    Bucardo wanted to work with the Brazilians on importing equipment
    for Nicaragua's coffee and beef sectors.  Lula promised to ask
    Brazilian bus manufacturers to sell their buses to Nicaraguans at
    discounted prices.

    The Private Sector had specific objectives
    ------------------------------------------

    ¶8. (U) While Ortega used the visit as an opportunity to criticize
    CAFTA and praise ALBA as "free trade versus fair trade," it was
    clear that the Brazilian business representatives who accompanied
    Lula view Nicaragua as a platform from which they could export to
    the United States, taking advantage of CAFTA.  At the
    Nicaragua-Brazil trade fair, the main areas of interest were
    infrastructure, energy, textiles and ethanol.  Nicaragua's largest
    sugar producer (and only ethanol producer) agreed to explore
    dehydrating Brazilian ethanol here for export to the U.S. under
    CAFTA terms.

    Food Assistance
    ---------------

    ¶9. (U) The GOB team paid particular attention to Nicaragua's "Hambre
    Cero" program--a food security initiative loosely based on Brazil's
    "Fome Zero" (Ref C).  Brazilian officials offered technical and
    scientific cooperation to Nicaragua to improve the program's
    effectiveness.  Currently, Hambre Cero is focused exclusively on
    distributing farm animals and seed to pre-selected families
    throughout Nicaragua.  In contrast, Fome Zero involves a variety of
    different initiatives, ranging from direct and conditional cash
    transfers to the poorest families ("Bolsa Familia"), distributing
    vitamins and iron supplements, and micro-credit.  Brazilian
    officials expressed support for the GON's plan to hand control of
    the Hambre Cero program to the controversial FSLN-controlled Citizen
    Power Councils (Ref B), as Brazil's program is run through a similar
    system of councils controlled by Lula's Workers' Party.

    Debt for Social Development Swap
    --------------------------------

    ¶10. (U) The most unexpected request to the GOB was Ortega's proposal
    to swap Nicaragua's debt with Brazil (USD 5.9 million) with projects
    in the social and development sectors.  Given that this was the
    first mention of such an idea, no specifics on the exact nature of
    the swap or the social programs were unveiled.  In his editorial
    during this visit, Lula argued that Brazil's forgiveness of
    Nicaragua's bilateral debt should be seen as "an expression of
    solidarity and also as a credit of confidence." (Note: Under the
    terms of the HIPC program, Nicaragua does not service any of its
    pre-HIPC foreign debt. End Note.)

    Helping Peace and Reconciliation
    --------------------------------

    ¶11. (U) President Lula also met with retired cardinal Miguel Obando
    y Bravo, who now heads up the GON's Commission of Verification,
    Peace, Reconciliation and Justice.  Lula promised technical
    assistance to the Commission which seeks to resolve the demands of
    150,000 ex-combatants.  Lula promised he would send a delegation
    headed by the Brazilian Minister of Agriculture and a team of
    Brazilian labor leaders to Nicaragua to discuss possible areas of
    cooperation.  Lula also committed to make contacts with other world
    leaders to gather resources for the Commission.

    Common Positions on Foreign Affairs
    -----------------------------------
    ¶12. (U) The final joint communique spelled out several common
    positions on foreign affairs:

    -- Both countries "manifested their will and firm commitment to
    fight transnational organized crime."

    -- Both "reaffirmed that terrorism, in all its forms and
    manifestations, has no justification."

    -- Both presidents "Expressed their feelings of solidarity with the
    Government and fraternal people of Cuba."

    -- Both presidents emphasized the dialogue and negotiations,
    according to the principles of the UN Charter, are the basis for
    finding peace in the Middle East, Iraq and Afghanistan.

    Comment
    -------

    ¶13. (SBU) Lula's visit demonstrated that while rhetorically Ortega,
    Lula, and Chavez may be in the same populist ballpark, in reality,
    the Brazilians are positioned away from Chavez and ALBA.  In many
    ways, Lula presented Ortega with an alternative leftist approach to
    populist, Chavista policies.  For Brazil, sugar-based ethanol, not
    oil, is the wave of the future.  Brazilian investors are attracted
    to Nicaragua because of CAFTA, as opposed to wanting to compete with
    CAFTA.  The concrete, business focused nature of Lula's visit stands
    in clear contrast to the promises made by Chavez and Ahmadinejad.
    Ortega came across as not particularly interested in what Lula had
    to offer, as it often challenged the basis of his alliance with
    Chavez and all things ALBA.

    TRIVELLI

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